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Canadian dollar slips to 2-week low in wake of dismal jobs, housing data

The currency weakened versus the majority of its most-traded peers after data on Feb. 8 showed employment unexpectedly fell, the nation had its ninth straight monthly trade deficit and housing starts sank to the lowest since 2009

The currency weakened versus the majority of its most-traded peers after data on Feb. 8 showed employment unexpectedly fell, the nation had its ninth straight monthly trade deficit and housing starts sank to the lowest since 2009. The loonie also fell as commodities and global stocks sank amid ebbing risk appetite.

“The weakness in the Canadian dollar is carry-over from themes from last week,” Camilla Sutton, chief currency strategist at Bank of Nova Scotia, said by telephone from Toronto. “In the very short term, we’re looking at a weaker Canadian dollar due to domestic pressures.”

The loonie depreciated 0.3% to C$1.0046 per U.S. dollar at 3:31 p.m. It reached C$1.0084, the weakest level since Jan. 28. One Canadian dollar purchases 99.54 U.S. cents.

The currency slid on Jan. 25 to C$1.01 per dollar, the weakest level since July 27. It appreciated on Jan. 11 to 98.16 cents, the strongest since Oct. 18. The loonie fell 1.5% over the past three months among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The U.S. dollar declined 1.2%.

Canada’s benchmark 10-year note fell, pushing the yield up one basis point, or 0.01 percentage point, to 1.97%. It touched 1.94% earlier, the lowest since Jan. 28. The price of the 2.75% security due in June 2022 declined 9 cents to C$106.65.

Higher Volatility

Implied volatility for three-month options on the U.S. dollar versus the loonie rose to the highest since Feb. 1 after reaching an almost three-week low on Feb. 8. It touched 6.29% today after falling to 5.83% last week. The five- year average is 11.61%. Implied volatility signals the expected pace of currency swings and is quoted by traders to set option prices.

“We’re still seeing follow-through from data from Friday,” Shaun Osborne, chief foreign-exchange strategist at Toronto-Dominion Bank’s TD Securities Inc., said in a telephone interview from Toronto. “The tone has been disappointing over the last few weeks, and the market spent the latter part of January and this month consolidating after the more dovish Bank of Canada statement in January.”

Growth Forecast

The Bank of Canada pared its forecast on Jan. 23 for economic growth this year to 2%, from an October prediction of 2.3%. The economy will reach full output in the second half of 2014 instead of the end of 2013, it said.

Bank Governor Mark Carney said that day an increase in the benchmark interest rate, which has been 1% since 2010 to spur growth, is “less imminent” because inflation has been slower than forecast and will remain below the 2% target through the first half of next year.

Employment in Canada fell in January for the first time in six months, dropping by 21,900 jobs following December’s revised gain of 31,200, the nation’s statistics agency reported Feb. 8.

The trade deficit narrowed in December to C$901-million from a revised C$1.67-billion last month as imports fell faster than exports, another government report showed on Feb. 8. Housing starts plunged 19% in January to an annual pace of 160,577, Canada Mortgage & Housing Corp. said in a statement.

Net Longs

Hedge funds and other large speculators decreased their bets that the Canadian dollar will gain against the U.S. dollar to the lowest levels since Aug. 7, figures from the Washington- based Commodity Futures Trading Commission showed on Feb. 8. The difference in the number of wagers on an advance in the Canadian dollar compared with those on a drop — so-called net longs — was 27,761 on Feb. 5, compared with 35,057 the week before.

The loonie declined today as the Standard and Poor’s GSCI Index of 24 commodities fell as much as 0.8% before paring the loss to less than 0.1%. Raw materials account for almost half Canada’s export revenue.

“Looking at commodities, there is certainly broad weakness, which is not helping the loonie’s cause,” Dean Popplewell, a currency analyst at Oanda Corp., said in a telephone interview from Toronto.

Futures for crude oil, Canada’s biggest export fell as much as 0.8% before gaining 1.3% to $96.99 a barrel in New York. Crude rose as the euro strengthened against the U.S. dollar after European Central Bank council member Jens Weidmann said the shared currency isn’t seriously overvalued and warned governments against trying to weaken it. A stronger euro and weaker dollar boost oil’s appeal as an investment alternative.

The euro advanced as much as 0.5% to $1.3428 and gained 0.4% to C$1.3451.

The MSCI World Index of stocks declined 0.3%, and the S&P 500 Index fell as much as 0.3% before trading little changed.